The Bangko Sentral ng Pilipinas (“BSP”) is the central monetary authority in the Philippines which functions as the central bank, regulator, and supervisor of banks and non-bank financial institutions. Under Republic Act No. 7653, as amended, otherwise known as the “New Central Bank Act” (the “NCBA”), the BSP shall provide policy directions in the areas of money, banking, and credit, and shall have supervision over the operations of banks and exercise such regulatory and examination powers over the quasi-banking operations of non-bank financial institutions. It also exercises regulatory and examination powers over other non-bank financial institutions such as money service business, credit granting businesses, and payment system operations.

The Securities and Exchange Commission (“SEC”) exercises supervision and jurisdiction over all corporations and persons acting on their behalf, including foreign companies doing business in the Philippines.

Under Republic Act No. 8791, otherwise known as the General Banking Law” (the “”GBL”), an entity that is engaged in banking operations or quasi-banking functions is required to obtain a banking license or quasi-banking license, respectively, from the BSP.

While “banking operations” is not defined under the GBL, banks shall refer to entities engaged in the lending of funds obtained in the form of deposits. Meanwhile, quasi-banking refers to borrowing funds for the borrower’s own account from twenty (20) or more lenders at any one (1) time by issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as acceptances, promissory notes, participations, certificates of assignments or similar instruments with recourse, trust certificates, repurchase agreements, and such other instruments as the Monetary Board (“MB”) may determine, and the purpose of which is (1) relending, or (2) purchasing receivables or other obligations.

Yes, the BSP issues several types of banking license, which determines the general banking powers and authorities of the bank. Currently, the BSP classifies banks into the following:

1. Universal banks may offer the widest range of banking services. It has the authority to exercise the powers authorized for a commercial bank, the powers of an investment house, and the power to invest in non-allied enterprises. Universal banks may also own 100% of the capital stock of digital banks, and trust corporations, and only universal banks may own shares of insurance companies.
2. Commercial banks shall have the authority to exercise all such powers as may be necessary to carry on the business of commercial banking, such as accepting drafts and issuing letters of credit; discounting, and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and extending credit, subject to such rules as the MB may promulgate, in addition to the general powers incident to corporations and those provided in other laws. It may also invest in the equities of allied enterprises but unlike universal banks, commercial banks may own only up to 49% of the capital stock of digital banks and trust corporations.
3. Thrift banks shall be composed of: (a) savings and mortgage banks, (b) stock savings and loan associations, and (c) private development banks. Thrift banks generally have the power to: (a) grant loans, whether secured or unsecured; (b) invest in readily marketable bonds and other debt securities, commercial papers and accounts receivable, drafts, bills of exchange, acceptances or notes arising out of commercial transactions (c) issue domestic letters of credit; (d) extend credit facilities to private and government employees; (e) extend credit against the security of jewelry, precious stones and articles of similar nature, subject to such rules and regulations as the MB may prescribe; (f) accept savings and time deposits; (g) rediscount paper with the Land Bank of the Philippines (“LBP”), Development Bank of the Philippines (“DBP”), and other government-owned or -controlled corporations; (h) accept foreign currency deposits; (i) act as correspondent for other financial institutions; (j) purchase, hold and convey real estate as specified under Sections 51 and 52 of the GBL; (k) offer other banking services as provided in Section 53 of the GBL; and (l) buy and sell foreign exchange.
4. Rural banks have the power and authority to (a) extend loans and advances primarily for the purpose of meeting the normal credit needs of farmers, fishermen or farm families as well as cooperatives, merchants, private and public employees; (b) accept savings and time deposits; (c) act as correspondent of other financial institutions; (d) rediscount paper with the LBP, DBP or any other bank, including its branches and agencies. Said banks shall specify the nature of paper deemed acceptable for rediscount, as well as the rediscount rate to be charged by any of these banks; (e) act as collection agent; (f) acquire readily marketable bonds and other debt securities; (g) offer other banking services as provided in Section 53 of the GBL; and (h) buy and sell foreign exchange. Same with thrift banks, rural banks may perform additional services subject to prior approval of the MB, may acquire only up to 49% of the capital stock of other banks, except cooperative banks, and own up to 40% of the capital stock of trust corporations.
5. Cooperative banks shall primarily provide financial, banking, and credit services to cooperatives and their members, although it may provide the same services to non-members or the general public. In addition to the powers granted to cooperative banks under existing laws, any cooperative bank may perform any or all of the banking services offered by rural banks provided above. Same with rural banks, cooperative banks may perform additional services subject to prior approval of the MB, may acquire only up to 49% of the capital stock of other banks, except cooperative banks may own up to 100% of a rural bank, and own up to 40% of the capital stock of trust corporations.
6. Islamic banks shall have such powers as shall be necessary to carry out the business of a bank in accordance with Shari’ah principles. Islamic banks may perform the following services, among others: (a) accept or create current accounts; (b) accept savings accounts for safekeeping or custody with no participation in profit and loss except unless otherwise authorized by the account holders to be invested; (c) accept investment accounts; (d) accept foreign currency deposits; (e) act as correspondent of banks and institutions to handle remittances or any fund transfers; (f) accept drafts and issue letters of credit or letters of guarantee, negotiate notes and bills of exchange and other evidence of indebtedness; (g) act as collection agent in so far as the payment orders, bills of exchange or other commercial documents; and (h) provide financing contracts and structures.
7. Digital banks offer financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branch/sub-branch or branch-lite unit offering financial products and services. Digital banks have the power and authority to: (a) grant loans, whether secured or unsecured; (b) accept savings and time deposits, including basic deposit accounts as defined under BSP regulations; (c) accept foreign currency deposits; (d) invest in readily marketable bonds and other debt securities, commercial papers, and accounts receivable, drafts, bills of exchange, acceptances, or notes arising out of commercial transactions; (e) act as correspondent for other financial institutions; (f) act as collection agent for non-government entities; (g) issue electronic money products subject to the guidelines provided by the BSP; (h) issue credit cards; (i) buy and sell foreign exchange; and (j) present, market, sell, and service microinsurance products subject to the guidelines provided under BSP regulations.

The BSP through its MB may provide or determine other classification of banks.

No. The specific activities that a bank may engage in is determined by its banking license as provided under existing laws. Under existing BSP regulations, banks will have to apply for additional authorities in order to engage in certain activities which are not expressly granted to a classification of bank under the relevant laws, including the provision of electronic payment and financial services (i.e., to provide banking products and services online or thru mobile app), acting as an operator of payment system, and issuing e-money. Under the GBL, only universal banks have the powers of an investment house, which includes engaging in broker-dealer activities.

Yes. In 2022, BSP issued BSP Circular No. 1153 on the Regulatory Sandbox Framework.

The Regulatory Sandbox Framework applies to all BSP-supervised financial institutions (“BSFls”), third-party service providers of BSFls, other BSP-registered institutions, and new players that intend to offer or use an emerging or new technology to deliver financial products/services pertaining to activities that could fall under the regulatory purview of the BSP.

Applicants should meet certain eligibility standards to be able to participate in the regulatory sandbox. Each regulatory sandbox shall undergo a four-stage process: Application. Evaluation, Testing, and Exit Stage. Participants shall submit (i) interim and (ii) final reports to the BSP to facilitate monitoring of the progress of the regulatory sandbox and the attendant risks. and assessment of the success of the experimentation. In the test design phase, the BSP and the participant shall agree on the details of the reports to be submitted such as the content, frequency, and schedule of reporting, among others,

Participant/s whose sandbox activities are assessed as successful and whose products or services are deemed fit for public consumption shall be issued an authority to operate. The participant shall formally submit to the BSP an application to operate and offer for public use and consumption the proposed product or service that was subjected to the sandbox activity, including any proposed new regulations or changes to existing regulations.

Issuance of cryptocurrencies is currently not regulated by the BSP. To the extent that cryptocurrencies may be considered as securities, this will be subject to the regulation of the SEC pursuant to the Securities Regulation Code (“SRC”).  However, as of current date, the SEC has not approved its Proposed Rules on Initial Coin Offerings.

While the BSP does not currently regulate the issuance of cryptocurrencies, the BSP nevertheless regulates virtual asset service providers (“VASP”), which refer to entities that are engaged in the business of: (1) exchanging fiat currency to virtual currency; (2) exchanging between one or more forms of virtual currencies; (3) transferring virtual currencies; and (4) safekeeping/administration of virtual currencies or instruments enabling control over virtual currencies. Entities which are engaged in the foregoing activities are required to secure a VASP license from the BSP.

No, only monetary funds accepted by banks as deposits are covered by the deposit insurance provided by the Philippine Deposit Insurance Corporation (“PDIC”).

VASPs operate as a money service business which is a non-bank financial institution. Thus, virtual currencies held by VASPs are also not considered as deposits which are subject to deposit insurance. VASPs performing safekeeping/administration of virtual currencies or instruments enabling control over virtual currencies (“VA Custodian”) are required to adopt effective mechanism to segregate customers’ virtual assets or currencies from their proprietary virtual assets or currencies.

VA Custodians are required to have a minimum capital of Php50 Million while other VASPs without safekeeping and/or administration services for virtual currencies are required to have a minimum capital of Php10 Million.

The application process with the BSP for the grant of authority to establish a bank consists of three (3) stages:

1. Stage 1 refers to the application for BSP approval to establish a bank. In this stage, the applicant will have to submit a letter of request with documentary requirements to the BSP. Documentary requirements under this stage include, among others, a comprehensive corporate plan describing its business model, including the target market and channels, corporate strategy and economic justification for establishing the bank, feasibility study with projected monthly financial statements for the first year and projected yearly financial statements for the first five (5) years of operation, and documentary requirements on the proposed incorporators, directors and officers. The BSP requires the submission of additional requirements for foreign banks seeking authority to establish a bank in the Philippines.
2. Stage 2 refers to the application for the issuance of certificate of authority to register with the SEC its articles of incorporation and/or by-laws indicating its purpose to establish a bank; and
3. Stage 3 refers to the application for the issuance of certificate of authority to operate a bank, which can only be done after the SEC approves the incorporation of the bank.

The above stages only pertain to the processing with the BSP and do not include the applications with other government agencies which are required to be submitted under the above stages. For instance, after Stage 2, the actual incorporation of the bank will be applied with the SEC and the certificate of incorporation is one of the requirements for the issuance of the certificate of authority under Stage 3.

The average timing depends on the circumstances of each application. However, BSP indicated that assuming that all information and documentary requirements have been submitted to the BSP’s satisfaction, the process time for each stage should be as follows: (1) Stage 1, 20 working days; (2) Stage 2, 15 working days; and (3) Stage 3, 5 working days. Application for incorporation of a bank with the SEC may take about three (3) to four (4) months.

Under the GBL, only entities with a valid banking license issued by the BSP can operate as a bank in the Philippines.

However, cross-border banking activity may be permissible in certain cases. The MB may authorize qualified foreign banks to open representative offices in the Philippines. Such representative offices may promote and provide information about the services/products offered by the foreign banks but may not transact banking business, such as acceptance of deposits, issuance of letters of credit and foreign exchange trading. Transactions generated through the promotional efforts of the representative office may be booked only by the foreign bank abroad.

Under the GBL, entities with a valid banking license issued by the BSP can operate as a bank in the Philippines. The BSP may issue banking license to an entity incorporated in the Philippines, and a branch, or an offshore banking unit in the Philippines of a foreign bank.

The GBL provides the power of the MB to determine the requirements for the establishment of Philippine banks and securing banking license from the BSP, which shall incorporate an assessment of the bank’s ownership structure, directors and senior management, its operating plan and internal controls as well as its projected financial condition and capital base.

The specific requirements for securing a banking license from the BSP is provided in the Manual of Regulations for Banks (“MORB”), the BSP’s citizen’s charter and BSP issued regulations which are regularly updated by the BSP. The MORB provides, among others, guidelines on the minimum capitalization for each classification of banking license, limitations on ownership or stockholdings in banks, regulations on transactions involving voting shares of banks, and compliance with Basel risk-based capital. It also provides for risk management, compliance, internal control, internal audit, and reporting governance frameworks which Philippine banks are required to comply with.

The MORB also provides the corporate governance framework applicable to Philippine banks which is aligned with the Code of Corporate Governance for Publicly-Listed Companies issued by the SEC. The corporate governance policy of the BSP sets out the requirements which include, but are not limited to the composition, powers, duties and responsibilities of the board of directors, the qualification and grounds for disqualifications of the directors, the establishment of board-level committees and their powers and functions, the qualifications, duties and responsibilities of officers, regulations on remuneration and other incentives of directors, officers and employees of banks, and regulations on related-party transactions.

The board of directors of banks shall approve a remuneration and other incentives policy that is appropriate and consistent with the bank’s operating and risk culture, long-term business and risk appetite, performance, and control environment. Such policy shall be aligned with prudent risk-taking and explicitly discourage excessive risk-taking as defined by internal policies.

As a minimum, the BSP requires Philippine banks to have a board-level committee called the corporate governance committee whose responsibility includes overseeing the design and operation of the remuneration and other incentives policy. To protect the funds of depositors and creditors, the MB may also regulate the bank’s payment to its directors and officers of compensation, allowance, fees, bonuses, stock options, profit sharing and fringe benefits in exceptional cases and when the circumstances warrant, such as but not limited to the following: (1) when the bank is under conservatorship; (2) when the MB finds the bank to be conducting business in an unsafe or unsound manner; or (3) when the MB finds the bank to be in an unsatisfactory financial condition.

Under the Revised Corporation Code (“RCC”), the directors or trustees shall not receive any compensation in their capacity as such, except for reasonable per diems: Provided, however, That the stockholders representing at least a majority of the outstanding capital stock or majority of the members may grant directors or trustees with compensation and approve the amount thereof at a regular or special meeting. In no case shall the total yearly compensation of directors exceed ten percent (10%) of the net income before income tax of the corporation during the preceding year. Publicly listed banks and banks which are considered as public companies or registered issuers are covered by the relevant Codes of Corporate Governance issued by the SEC which includes the direction for such banks to create board committees, including a corporate governance committee which have the responsibility of establishing a formal and transparent procedure to develop a policy for determining the remuneration of directors and officers that is consistent with the corporation’s culture and strategy as well as the business environment in which it operates.

Yes, the BSP initially implemented and applied the Basel III framework with respect to regulatory capital to universal banks, commercial banks, and subsidiary banks and quasi-banks of the universal and commercial banks. In 2020, the BSP issued the new frameworks to be used for regulatory capital of standalone thrift, rural and cooperative banks which largely conform with the Basel capital adequacy standards.

Yes, BSP Circular No. 881, as amended by BSP Circular No. 990, provides for a leverage ratio which shall not be less than 5%, and which applies to all universal and commercial banks and their subsidiary banks/quasi-banks computed on both solo and consolidated bases,

The Basel III liquidity requirements apply to Philippine banks subject to certain modification for smaller banks (i.e. thrift banks, rural banks and cooperative banks).

BSP Circular No. 905, as amended by BSP Circular No. 1035, sets out the requirements pertaining to liquidity coverage ratios, minimum liquidity ratio and disclosure standards for universal banks, commercial banks and subsidiary banks and quasi-banks of the universal and commercial banks. The BSP requires the foregoing banks to hold sufficient level of high-quality liquid assets to enable them to withstand a 30-day liquidity stress scenario. Universal banks, commercial banks, and subsidiary banks and quasi-banks of the universal and commercial banks are required to meet a minimum LCR of 100%.

Meanwhile, BSP Circular No. 996 requires standalone thrift banks, rural banks, and cooperative banks to maintain a minimum liquidity ratio (i.e., percentage of a bank’s/quasi-bank’s eligible stock of liquid assets to its total qualifying liabilities) of 20%. BSP Circular No. 1007, as amended by BSP Circular No. 1034, requires universal banks, commercial banks and subsidiary banks and quasi-banks of the universal and commercial banks to maintain a minimum Net Stable Funding Ratio of 100%.

Yes, Section 61 of the GBL requires banks to publish a statement of their financial condition, including those of its subsidiaries and affiliates, at least once every quarter, in a newspaper of general circulation in the city or province where the principal office, in the case of a domestic institution, or the principal branch or office in the case of a foreign bank, is located, but if no newspaper is published in the same province, then in a newspaper published in Metro Manila or in the nearest city or province.

Banks are also required to submit their balance sheets and income statements to the BSP and the BSP publishes the quarterly balance sheets of the Philippine banks in its website.

Yes, the BSP adopts a consolidated supervision approach. Under the NCBA, the BSP shall have supervision over, and conduct regular or special examinations of banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied activities.

Pursuant to the consolidated supervision approach, the BSP sets a common cut-off date for the examination of banks and their subsidiaries/affiliates under BSP supervision, and requires publication of quarterly consolidated financial condition for the parent bank and its subsidiaries engaged in financial allied activities. The BSP also requires the submission of annual audited financial statements of banks, which must be prepared for the banking group and the parent bank.

The consolidated supervision approach is also used in the implementation of prudential regulations. For instance, the risk-based capital adequacy ratio and leverage ratio requirements are applied on both solo basis (head office plus branches) and consolidated basis (parent bank plus subsidiary financial allied undertakings.

However, certain activities of a bank may fall under the regulations or supervision of other government agencies. For instance, issuance of securities by banks (including the bank’s issuance of its own shares) is covered by the SRC which is implemented by the SEC.

Prior approval of the MB shall be required on transactions involving voting shares of stock of a bank, if such transaction, in itself or in relation with other/previous transactions, will:

1. result in ownership or control of more than ten percent (10%) of voting shares of stock of a bank by any person whether natural or juridical or which will enable such person to elect, or be elected as, a director of such bank; or
2. effect a change in the majority ownership or control of the voting shares of stock of the bank from one (1) group of persons to another group: provided, that in no case shall such transaction be approved unless the bank concerned shall immediately comply with the prescribed minimum capital requirement for new banks, notwithstanding any approved capital build-up program.

Yes, in general, BSP regulations require shareholders, including ultimate beneficial owners, of banks to be suitable and fit and have adequate financial strength.

Foreign bank applicants that aim to establish a branch or a subsidiary in the Philippines must be widely-owned and publicly-listed in its country of origin, unless the foreign bank applicant is owned by the government of its country of origin; and established, reputable, and financially sound.

The determination of suitability, fitness, and financial adequacy of shareholders, and whether a foreign bank applicant is widely-owned and publicly listed, established, reputable, and financially sound shall be based on the information derived from submitted documents.

Yes, there are restrictions on foreign shareholdings in banks.

Any foreign individual or non-bank corporation may each own or control up to forty percent (40%) only of the voting stock of a universal bank, commercial bank, and thrift bank; provided, that the aggregate foreign-owned voting stock owned by foreign individuals and non-bank corporations shall not exceed forty percent (40%) of the voting stock of the universal or commercial bank, and sixty percent (60%) in the case of thrift banks.

Any foreign individual or non-bank corporation may each or in the aggregate, own, acquire or purchase, up to sixty percent (60%) of the voting stock in a rural bank.

Qualified foreign banks may own or control up to 100% of the voting stock of a domestic bank.

Violations of Philippine banking laws and regulations may result in sanctions to be imposed on the bank and/or its directors and officers.

Sanctions on banks may be in the form of: (i) restrictions on activities and privileges; (ii) suspension of authorities, privileges and other activities; (iii) divestment and/or unwinding; and/or (iv) monetary penalties/fines.

Sanctions against bank directors and officers may be in the form of: (i) reprimand; (ii) restriction on compensation and benefits; (iii) divestment; (iv) suspension; (v) disqualification; (vi) removal; and/or (vii) monetary penalties/fines. The foregoing sanctions on individuals are without prejudice to the filing of separate civil or criminal actions against them, when appropriate.

Under the NCBA, the BSP, through the MB, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, local or foreign, operating in the Philippines.

Under the NCBA, upon finding that a bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors, the MB may appoint a conservator with such powers as may be necessary to restore the viability of the bank. The conservatorship shall be terminated when the MB is satisfied that the bank can continue to operate on its own and the conservatorship is no longer necessary or if the MB determines that the continuance in business of the institution would involve probable loss to its depositors or creditors, in which case the MB may forbid the bank from doing business and recommend the bank to be under receivership.

The MB may designate the PDIC as receiver in case the bank:

1. has notified the BSP or publicly announced a unilateral closure, or has been dormant for at least sixty (60) days or in any manner has suspended the payment of its deposit/deposit substitute liabilities, or is unable to pay its liabilities as they become due in the ordinary course of business: provided, that this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community;
2. has insufficient realizable assets, as determined by the BSP, to meet its liabilities;
3. cannot continue in business without involving probable losses to its depositors or creditors;
4. has willfully violated a cease-and-desist order under Section 37 that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution; or
5. persistence in conducting business in an unsafe or unsound manner. 

   Under BSP Circular No. 1158, Series of 2022, on the “Guidelines on Recovery Plan of Banks”, the BSP requires Philippine banks to adopt a recovery plan which will provide, among others, for early warning indicators and trigger levels (which must be set above the minimum regulatory requirements but below or at more severe levels than the triggers applicable in activating the capital and liquidity contingency plans) for activation of the recovery plan, reporting requirements to the BSP, restoration points, recovery options, preparatory measures and implementation plan, testing and simulation exercises and updating of such recovery plan. The recovery plan shall be subject to annual BSP review.

Banks are required to maintain reserves against their deposit and deposit-substitute liabilities. The required reserves of each bank shall be proportional to the volume of its deposit liabilities and shall ordinarily take the form of a deposit in the BSP.

There is a mandatory deposit insurance coverage system, which allows for deposit liabilities of any bank which is engaged in the business of receiving deposits to be insured with the PDIC.

The current bank resolution framework does not specifically provide for a bail-in tool.

However, there appears to be a bail-in mechanism embedded in the capital adequacy framework for banks. In order for securities of Philippine banks to qualify for inclusion and to be classified under additional tier 1 and tier 2 capital, there must be a provision that requires the instrument to either be written off or converted into common equity upon the occurrence of a trigger event. The trigger event occurs when a bank is considered non-viable as determined by the BSP. Nonviability is defined as a deviation from a certain level of CET1 Ratio which is currently set at CET Ratio of 7.25% or below, inability of the bank to continue business, or any other event as may be determined by the BSP, whichever comes earlier.

Tier 2 capital is considered to be gone concern capital. There is no statutory requirement for banks to hold gone concern capital provided that the total capital adequacy ratio (i.e., aggregate amount of net Tier 1 capital and net Tier 2 capital divided by total risk-weighted assets) shall be above 10%. The BSP has yet to issue the TLAC standard.

The BSP tends to issue regulations in order to cover and regulate entities that engage in activities which are part of the functions of existing or traditional BSP supervised financial institutions such as banks. For instance, in the last few years, the BSP issued regulations to require BSP license and to regulate entities operating as electronic money issuers, operators of payment systems and virtual asset service providers (previously known as virtual currency exchanges).

Recognizing the role of digital platforms in promoting efficiency in the delivery of financial products and services, in 2020, the BSP provided the guidelines on the establishment of digital banks. Since the BSP issued the guidelines, it has issued six (6) certificates of authority to operate as a digital bank. The BSP closed the window for establishment of digital banks in August 2021.

As indicated above, the BSP also issued the Regulatory Sandbox Framework which will allow the BSP to be apprised of emerging or new technology to deliver financial products/services pertaining to activities that could fall under the regulatory purview of the BSP and thus regulate the same even before these products or services are launched for public consumption.

One of the biggest threats to the success of the financial sector in the Philippines are information security related risks. Information security breaches not only disrupt business operations but could also result in reputational damage that may weaken the public’s trust and confidence in the financial system. To address concerns on cybersecurity, the BSP has issued standards and guidelines that put greater emphasis on cybersecurity controls and measures in managing information security risks.